A flight-to-liquidity is a financial market phenomenon occurring when investors sell what they perceive to be less liquid or higher risk investments, and purchase more liquid investments instead, such as US Treasuries. Usually, flight-to-liquidity quickly results in panic leading to a crisis.
For example, after the Russian government defaulted on its government bonds (GKOs) in 1998 many investors sold European and Japanese government bonds and purchased on-the-run US Treasuries instead. (The most recently issued treasuries, known as “on-the-run”, have larger trading volumes, that is more liquidity, than treasury issues that have been superseded, known as “off-the run”.) This widened the spread between off-the-run and on-the-run US Treasuries, which ultimately led to the 1998 collapse of the Long-Term Capital Management hedge fund.[1]
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Gil Penchina on taking FB approach to move fast & break things; Flight.vc back-to-back billion $ acq
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Fixed-Income Securities - Lecture 04
Transcription
See also
References
- ^ LTCM case study Archived 2011-07-18 at the Wayback Machine
External links
- The Flight-to-Liquidity Premium in U.S. Treasury Bond Prices
- Flight to Liquidity Due to Heterogeneity in Investment Horizon
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This page was last edited on 23 July 2020, at 00:30